When this article was originally conceived, the title was very different: "Why Hedge Funds Aren't Investing in the Cannabis Industry but Family Offices Might."

The case was strong, and arguments abounded. The main ones, though, were structured around the limited liquidity in the cannabis industry and the resulting inability to short equities -- which is necessary to operate a long/short equity hedge fund; and the fact that a very large percentage of hedge funds' funds came from other institutional investors like pension funds, which would not be fine with hedge funds investing in so-called sin industries like cannabis or gambling.

On the other hand, family offices, which manage the private wealth of an individual or a few high-net-worth individuals, tend to respond to a certain type of investment or risk-reward profile, not to the desires and preferences of outside investors. Thus, many of them were already investing in the cannabis industry, while most hedge funds were not doing so -- at least, overtly.

However, over the past few months, especially since Corona beer maker Constellation Brands made an investment of more than $190 million in Canopy Growth Corp., the largest marijuana grower in the world, a lot has changed. Actually, in the past 90 days, several cannabis-focused financial analysts and investments fund managers out of New York and San Francisco have been reporting (off the record) a marked surge in interest for the cannabis industry among hedge funds -- especially cannabis-focused ones. So, the question now seems to be: Are hedge funds finally investing in the cannabis industry?

Hedge funds and cannabis

Unfortunately, the answer to the question above is neither black nor white, but some shade of gray instead. "Hedge funds are slowly getting into the cannabis space, but they are likely investing in only a handful of companies that are not 100 percent cannabis-focused and that also fit their fund mandates [a set of rules that assure investors how and where their money will be invested]," Viridian Capital Advisors' vice president Harrison Phillips told me.

"So, I wouldn't say hedge fund investments in the cannabis industry are a very widespread trend. But, we are seeing some, for sure," Phillips added.

"Investing in cannabis companies is still controversial in the U.S. because the federal government and many states still deem marijuana illegal," said Don Steinbrugge, Managing Partner at Agecroft Partners, recently named by Hedgeweek as the top hedge fund marketing firm for seventh time in eight years. "While some hedge funds have shied away from the industry for moral reasons, most have done it because they are concerned about the reaction of their investors."

"Hedge funds have a very structured way in which they invest," Giadha Aguirre de Carcer, founder and CEO of New Frontier Data, added. "Some standardization, basic things like complete access to banking, have to occur in the cannabis industry before we can see hedge funds really come in."

Family offices, instead, do not have to respond to outside investors such as pension funds, like hedge funds do. Consequently, many family offices have been backing cannabis businesses for a while; and so have venture capital firms -- as they seek the highest-possible returns on investment.

Nonetheless, this article is focused on hedge funds, so let's get back to our main topic. For a complete look into all the different sorts of investors putting money into cannabis businesses, check out Entrepreneur Media's upcoming book, Start Your Own Cannabis Business, available for pre-order on Amazon, Barnes & Noble and many other sites.

Cannabis-focused hedge funds

We know that regular old hedge funds like Warren Buffett's Berkshire Hathaway are still staying away from the cannabis industry, for the most part. Notwithstanding, a few cannabis-focused hedge funds have debut recently or are looking to do so. "This signals a steady maturation of the capital markets in the cannabis industry," Phillips said. Aguirre de Carcer did, in fact, bring up this same conclusion.

So far, there seems to be two institutional investors applying a long/short investment strategy with advanced hedging techniques: Poseidon Asset Management and Navy Capital. Interested in their investment philosophies, I reached out to both.

Poseidon Asset Management was formed in 2013 and structured as a hedge fund seeking flexibility in its investments and its capital raising capabilities, Managing Director Emily Paxhia explained. "The hedge fund structure allows us to constantly raise money and deploy it as we go."

However, working as a hedge fund also calls for many external controls and reporting demands. "We happily fulfill our obligations as a hedge fund," Paxhia added. "That extra layer of transparency gives investors more confidence, peace of mind."

It's quite hard to short stocks in this industry, though, she acknowledged. But, Poseidon does. The firm makes long investments in U.S. and Canadian cannabis companies. However, most of the action is going on in Canada, Paxhia said.

Navy Capital is younger; it only launched in May of 2017. Still, its institutional investment peers already recognize it as a cannabis-focused hedge fund. "We focus on public equity," portfolio manager Sean Stiefel explained. "There are many private equity funds in the industry, but not a lot of public equity funds still.

"This space has really changed a lot since the Constellation investment in Canopy Growth. The biggest names in the industry are seeing more than $30 million or $40 million in stock change hands every day," he added, pointing out that Navy Capital is now also investing in private companies, as the market matures. "It's all changing very quickly. The surging liquidity, market caps, the diversity, the various sectors, the various countries . . . all of this has made the cannabis industry much more investable."

So, get ready, because there is one thing that all interviewees here agreed on: Hedge funds are slowly coming into the cannabis industry, and many more will be arriving rather sooner than later.

From retailers to growers, producers, and suppliers, there’s a seemingly never-ending list of startup opportunities in this emerging market. In Start Your Own Cannabis Business, marijuana, biotech, and entrepreneurship reporter Javier Hasse introduces forward-thinking entrepreneurs like you to the industry and shares hard-earned tips and success stories from pioneers and visionaries in the marijuana industry.

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